Incorporated in 1997 and promoted by Onkar Singh Pasricha and Arvinder Singh Pasricha, TCNS Clothing Co. (TCNS) is India's leading women's branded apparel company in terms of the total number of exclusive brand outlets as of May 18 (Source: Technopak). The company designs, markets, and retails a wide portfolio of women's branded apparel across multiple brands and formats. TCNS's product portfolio includes top-wear, bottom-wear, drapes, combination-sets and accessories that cater to a wide variety of the wardrobe requirements of the Indian woman, including every-day wear, casual wear, work wear and occasion wear.

Over the years, the company expanded its brand portfolio to three brands, namely W, Aurelia and Wishful; each positioned to cater to well-defined needs of their respective target consumers. W is a premium fusion wear brand, which merges Indian and western sensibilities with an emphasis on distinctive design and styling and is targeted primarily at the modern Indian woman's work and casual wear requirements. Aurelia is a contemporary ethnic wear brand targeted at women looking for great design, fit and quality for their casual and work wear requirements. Wishful is a premium occasion wear brand, with elegant designs catering to women's apparel requirements for evening wear and occasions such as weddings, events, and festivals.

The company sells its products through exclusive brand outlets, large format stores, multi-brand outlets and online channels such as online retailers and own websites. As of Mar 18, the company sold its products through 465 exclusive brand outlets (EBO), 1469 large format store (LFS) outlets and 1522 multi-brand outlets (MBO), located in 31 states across 203 cities and two union territories in India. It also sold its products through six exclusive brand outlets in Nepal, Mauritius, and Sri Lanka. In addition, it sells its products through its own website and online retailers.

As on Mar 18, around 50% of revenues come from EBO, 28% from LFS, 11% from MBOs and rest 11% from online format and others. Total number of distribution networks including EBO, LFS and MBO stood at 3456 stores in FY 18 as compared to 2481 stores in FY 17.

As of March 31, 2018, the company had 176 franchised exclusive brand outlets.

It intends to open around 75 to 85 exclusive brand outlets during FY 19 and also in FY 20.

The objects are divestment and get the benefits of listing to enhance its visibility and brand image and provide liquidity to the existing shareholders.

The Promoters and group will own 32.4% of total paid-up equity share capital post listing.

StrengthsLeading women's apparel company in India with a portfolio of established brands and presence across the fashion wear for women.

Strongly positioned to leverage growth in the under-penetrated women's apparel industry in India. Women's apparel market in India is estimated at around US $ 19.3 billion and ethnic wear market is around US $ 13.7 billion as per Technopak.

Increasing consumer spending, increasing number of working women, shift from traditional wear to ethnic wear and modern fittings and overall shift from unorganised sector to brands and organised sector auger well for the company's business prospects.

Widespread distribution network and presence across a variety of retail channels helps in creating awareness about the brand and image of the company which is the backbone of its business.

The company follows a lease rental business model for EBO's instead of purchase of the real estate. This gives an edge as its able to break even an EBO in 6 months compared to around 18 months time frame for others. Also quick action like closing of stores or change in formatting can be taken in lease model if things don't go according to the plan.

Weaknesses

Company's business is characterized by rapid changes in customer preferences and fashions. It requires continuous efforts on forecasting consumer demand and responding to changes. Otherwise it may lead to inventory becoming obsolete and higher discounts to empty the stock.

Business is very seasonal. Needs to maintain adequate inventory ahead of the seasons. Any loss of season sale due to abnormal circumstances can severely affect the business.

The women's apparel industry in India, particularly for ethnic and non-western apparel, is fragmented and very competitive with several regional brands and retailers present in local markets across the country

No manufacturing plants and significant dependence on few key job workers, which are located in NCR Region. Top 5 Job workers account for around 52.8% of total fabrication charges for FY 18, all of them are located in NCR region. All the warehouses are also leased and located in Delhi.

Top five large format stores by revenue accounted for 81.80% of the revenues from large format stores and 22.68% of total revenues from operations for FY 2018. Similarly, top 5 online retailers by revenue accounted for 91.12% of the revenues from online channels or 9.16% of the revenues for FY 2018. Any loss of key retailer can significantly affect the business.

Significant dependency on Brand W which contributed around 57.7% of total revenues for FY 18 and 61.6% for FY 17. The company is yet to receive the trademark of the Brand W which has been opposed by the owners of brand Wrangler on various grounds and litigation is going on.

Many large format stores have started selling their in-house brands which may affect the future business.

The company's financial track record till FY 17 is volatile and lack-lustre. Profits have posted massive jump in FY 18, just ahead of current offer for sale.

Promoters are reducing their stake through current offer for sale even though there is no regulatory requirement. Post-offer promoter group stake will be only 32.4%.

Valuation

Net sales for FY 18 were up by 20% to Rs 838.49 crore and the OPM stood at 18.5% as compared to 10.9% for FY 17 leading to OP growth of 104% to Rs 155.44 crore. The other income was up by 247% to Rs 6.73 crore. Interest cost stood at Rs 0.67 crore down by 73%, while depreciation increased 24% to Rs 16.67 crore. Thus, profit before tax increased by 132% to Rs 144.83 crore. Total tax stood at Rs 46.73 crore flat on YoY basis which thus resulted in spurt in PAT to Rs 98.10 crore for FY 18.

At the higher price band of Rs 716, the P/E on FY 2018 EPS (on current diluted equity of Rs 12.26 crore) of Rs 16 works out to 44.7.

Kewal Kiran Clothing and Aditya Birla Fashion are some of its listed peers.

For FY 18, Kewal Kiran Clothing reported net sales and PAT of Rs 460.38 crore and Rs 73.24 crore respectively. This gives an EPS of Rs 59.4. At current market price of Rs 1400, the stock trades at around 23.6 times its FY 18 earnings.

Aditya Birla Fashions reported net sales and PAT of Rs 7172.07 crore and Rs 117.79 crore respectively. This gives an EPS of Rs 1.5. At current market price of Rs 140, the stock trades at around 91 times its FY 18 earnings.

TCNS Clothing Co : Issue highlights

Offer for sale ( in Rs crore)

- On lower price band

1121.98

- On upper price band

1125.13

Price Band (Rs)

714-716

Bid size ( in no of shares)

20.00

Post issue share capital (Rs crore)

12.26

Post-issue Promoter & Group shareholding (%)

32.4%

Issue open date

18-07-2018

Issue closed date

20-07-2018

Listing

BSE, NSE

Rating

35/100

TCNS Clothing Co: Financials

1403(12)

1503(12)

1603(12)&

1703(12)&

1803(12)&

Net Sales

169.59

300.96

486.00

700.94

838.49

OPM (%)

12.7%

17.0%

-0.8%

10.9%

18.5%

OP

21.49

51.10

-3.88

76.29

155.44

Other in.

0.68

0.97

2.06

1.94

6.73

PBDIT

22.17

52.06

-1.82

78.23

162.17

Interest

4.90

4.88

2.95

2.47

0.67

PBDT

17.27

47.18

-4.76

75.77

161.50

Dep.

3.99

6.23

8.87

13.41

16.67

PBT

13.28

40.96

-13.64

62.36

144.83

Tax (including Deferred Tax)

4.53

14.67

27.86

46.56

46.73

PAT

8.75

26.28

-41.50

15.80

98.10

EPS (Rs)*

1.4

4.3

-6.8

2.6

16.0

*EPS is on post issue equity capital of Rs 12.26 crore of face value of Rs 2 each & Financials for FY 15 and FY 14 are as per IGAAP while rest of the financials are as per New Ind ASFigures in croreSource: Capitaline Database